Investors Bet that Europe’s Major Airlines Have Found Route Around Turbulence

Chiara Remondini and Brian Lysaght , Bloomberg

- Apr 03, 2017 1:00 pm

Skift Take

In a change from the past five years, investors have been running up the stock valuations of Air France/KLM, IAG, and Lufthansa Group, which have done acceptable jobs of negotiating a year marred by terrorism, air traffic disruption, and the economic uncertainty surrounding Brexit.

— Sean O'Neill

Share

Tweet

Share

Post

Send

Now look who’s laughing.

After years of losing business to discount airlines, the major carriers in Europe are gaining strength and outperforming in stock markets.

Deutsche Lufthansa AG and International Consolidated Airlines Group SA surged more than 19 percent in the first quarter. Air France-KLM Group, up 37 percent, is having its strongest quarter in three years. In contrast, discount airlines Ryanair Holdings Plc is little changed and EasyJet Plc up 2.5% for 2017.

Major European airlines are “upbeat on improved trading” and “optimistic” about ticket-pricing trends, Barclays Plc analyst Oliver Sleath said in a March 30 note. The brokerage raised estimates for earnings before interest and tax for Air France-KLM by 70 percent for this year while lifting Lufthansa’s adjusted Ebit projection by 30 percent.

The full-service airlines may also appeal to bargain hunters. Air France-KLM trades at about five times expected earnings per share, and IAG at seven, while Ryanair and EasyJet trade at about 12 times.

To be sure, some analysts say the share gains are overdone. Bank of America Merrill Lynch analysts on Monday downgraded IAG and Air France-KLM to underperform from buy, saying both face risks on short-and long-haul traffic. For the French carrier, the analysts also cited limited likelihood of the company raising its cost saving targets in the near-term due to the French elections.

This article was written by Chiara Remondini and Brian Lysaght from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

The Skift Daily newsletter puts you ahead of everyone about the future of travel, subscribe.

Photo Credit: A Lufthansa A350 lands in München Airport, Germany. It has mirrored rival Air France-KLM in investing in low-cost, long-haul units that are fending off upstarts like Ryanair and EasyJet. Lufthansa